Updated March 23 at 6:25am

U.S. factory production climbs by most in a year


WASHINGTON - Factories in the U.S. churned out more computers, cars and construction material in December as manufacturing remained at the center of the expansion.

Output climbed 0.9 percent last month, the biggest gain since December 2010, according to Federal Reserve data issued Wednesday in Washington. Other reports showed homebuilder confidence jumped and wholesale prices unexpectedly dropped.

Gains in consumer and business spending, combined with lean inventories, may prompt factories to continue to boost payrolls and hours, bolstering economic growth. Additionally, more demand from emerging markets may help shield American industry from a slowdown in exports to Europe as the region’s financial crisis and a weaker euro threaten to restrain sales.

“Manufacturing remains an engine of growth,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston, who accurately forecast the December gain. “Manufacturing has benefited from exports to emerging markets. The more resilient those economies are, the better it is for U.S. manufacturing.”

Stocks rose, giving the Standard & Poor’s 500 Index its best start to a year since 1987, as semiconductor and homebuilders gained. The S&P 500 climbed 1.1 percent to 1,308.04 at the close in New York. It’s up 4 percent this year.

The World Bank cut its forecast for global growth to 2.5 percent for this year from a June projection of 3.6 percent, the biggest reduction in its estimates in three years. The Washington-based institution said a recession in the euro region threatened to exacerbate a slowdown in other parts of the world.

Unemployment in U.K.

U.K. unemployment in the three months ended in November rose to the highest level since January 1996, deepening concerns Britain is heading for recession, figures today showed.

The unemployment rate based on International Labour Organization methods rose to 8.4 percent from 8.1 percent in the three months through August, the Office for National Statistics said in London.

Meantime, China reported today that foreign direct investment declined in December by the most since July 2009.

Total industrial production in the U.S., which includes factories, mines and utilities, climbed 0.4 percent in December, the Fed’s report showed. A warmer December than usual led to a 2.7 percent plunge in utility use, the biggest drop since October 2010.

The median forecast of 80 economists surveyed by Bloomberg News forecast a 0.5 percent rise in total output. Estimates ranged from no change to a 0.8 percent increase. Manufacturing accounts for about 12 percent of the U.S. economy.

Builder Confidence

Confidence among U.S. homebuilders rose in January to the highest level in more than four years as sales and buyer traffic improved, according to a report from the National Association of Home Builders/Wells Fargo.

The sentiment gauge increased to 25 this month, exceeding the median forecast of economists surveyed and reaching the highest level since June 2007, the Washington-based group said. Readings lower than 50 mean more respondents still said conditions were poor.

Record-low borrowing costs, a growing population and reduced prices may drive demand for homes this year even as another round of foreclosures threatens to weigh on the market. The confidence measure, which increased for a fourth straight month, improved in all four regions of the country.

“Builders are seeing greater interest among potential buyers as employment and consumer confidence slowly improve in a growing number of markets,” NAHB Chief Economist David Crowe said in a statement.

Wholesale Prices

Another report showed the producer-price index decreased 0.1 percent after a 0.3 percent gain the previous month, according to the Labor Department in Washington.

The Fed’s production report showed output of motor vehicles and parts advanced 0.6 percent. Manufacturing excluding autos and parts climbed 0.4 percent following a 0.2 percent November decrease.

Production of business equipment increased 0.8 percent after no change in November, boosted by more output of computers and machinery. Assembly lines turned out 1 percent more construction materials, the most in five months, showing how the improvement in housing is rippling through the economy.

Today’s figures are in line with the Institute for Supply Management’s national index of manufacturing, which rose last month. The barometer’s measures of production and orders climbed to the highest levels since April.

Europe Poses Risks

Manufacturing still faces risks, particularly from the European debt crisis, of a slowdown in demand for U.S. exports.

Last year “proved to be a challenging environment, most notably with the difficulties in the European region,” Roger Wood, president and chief executive officer at Dana Holding Corp., said Jan. 10 at an auto industry conference in Detroit. “Looking forward, we continue to foresee a mixed global outlook. We expect slow growth in North America and much better growth in both Asia and South America. We believe that Europe will continue to lag.”

The Maumee, Ohio-based maker of truck axles and frames, said in a statement that adjusted profit this year will be $1.95 to $2.05 a share. The average estimate of 12 analysts surveyed by Bloomberg was $1.88.

Europe’s slowdown has already started to limit U.S. exports, which dropped to a four-month low in November, according to Commerce Department figures released last week.

Manufacturers added 23,000 jobs in December, the most in five months, Labor Department figures showed on Jan. 6. Hours by non-supervisory factory workers climbed to 41.5 in December, matching the highest since May 2010 and a sign manufacturers may keeping adding to payrolls.


No comments on this story | Please log in to comment by clicking here
Please log in or register to add your comment
Latest News